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The FCPA Year In Review
 

The FCPA Year In Review

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FCPA Update & Overview

FCPA Update & Overview

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    The FCPA Year In Review The FCPA Year In Review Presentation Transcript

    • The FCPA Year in Review
      • Recent Investigations
      • Compliance Programs
    • Anti-Corruption History
    • Common Anti-Corruption Provisions
      • Anti-Bribery Prohibitions
      • Books & Records Requirements
      • Proceeds of Corruption Provisions
    • US Books & Records Provisions - “Issuers” only
      • Two requirements:
        • Maintain books and records which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
        • Devise & maintain internal controls that reasonably assure
          • the books and records are accurate and
          • transactions are pursuant to specific or general management direction
      • Civil and Criminal Penalties
        • Criminal fine of up to $5,000,000 for natural persons and $25,000,000 for legal persons
        • Imprisonment for not more than 20 years
        • Disgorgement
        • Bar on employment, professional disqualifications
    • Elements of US Anti-Bribery Offense
      • Issuer, domestic concern, or “any person ”
      • Use of mails or interstate commerce
      • Corruptly
      • In furtherance of payment, offer, or promise, or authorization of payment, offer, or promise
      • Of money or anything of value
      • To a public official, political party, party official, candidate for public office , or intermediary
      • To cause the official to do something, to refrain from doing something, or to use his or her influence
      • To assist in obtaining or retaining business for any person
    • Defenses and Exceptions
      • Facilitating or expediting payments
        • “ routine governmental action”
      • Reasonable and bona fide expenditures
        • Promotion, demonstration, or explanation of products or services
        • Execution or performance of a contract with a government
      • Lawful payments to government officials
        • Lawful under the written law of the official’s country
    • U.S. Cases Brought
    • Trends in U.S. Cases
        • Rise in Corporate Prosecutions
          • Post-Enron Corporate Fraud Task Force
          • Voluntary Disclosures resulting from Sarbanes Oxley
            • Focus by auditors on internal controls and “fraud” reporting
            • Management certifications
            • Whistleblower provisions
          • Increased availability of foreign evidence
        • Rise in Prosecution of Foreign Corporations
          • Increased cooperation and coordination with foreign law enforcement
          • Impatience with pace of foreign enforcement of OECD laws
          • Expansive interpretation of territorial jurisdiction over foreign companies
        • Growth in “Consolidated” or “Industry” Investigations
          • U.N. Oil for Food (17 corporations report open investigations; 9 corporations settled with DOJ & SEC)
          • Freight Forwarders & Customs Brokers (12 corporations report open investigations)
          • Medical Devices (11 corporations report open investigations)
    • Potential Sanctions in FCPA Matters
      • Civil Penalties
        • Fine of $325,000 (Tier II) or $650,000 (Tier III) per violation
        • Disgorgement of ill-gotten profits (SEC only )
      • Criminal Penalties
        • Organizations
            • $ 2 million per violation; or
            • Twice the “Gross Gain”
        • Individuals
          • 5 years in prison
          • $100,000 per violation
      • Collateral Consequences
        • Debarment
        • Shareholder & other actions
        • Foreign Prosecutions
      • Corporate Deferred Prosecution Agreement / Non Prosecution Agreements
        • Penalties & Restitution
        • Reporting
        • Compliance measures
        • Monitors
        • Cooperation, including waiver of attorney-client privilege
    • Trends in Sanctions
      • Company: Fines, Civil Penalties, Disgorgement & Interest
            • $ 800 million Siemens (+ € 596 in Germany)
            • 579 million KBR/ Haliburton
            • 44 million Baker Hughes
            • 32 million Wilbros
            • 28 million Titan
            • 26 million Vetco II
            • 22 million Lockheed II
            • 19 million Volvo
            • 17 million Fiat
            • 16 million ABB
      • Individual:
            • 84 months Steindler & Stanley
            • 63 months Murphy
            • 46 months Williams
    • Number of FCPA Proceedings by Country South America North America Middle East Europe Asia Africa 33 8 39 17 75 43 1 Uzbekistan 1 Turkmenistan 1 Mongolia 1 Nicaragua 2 Russia 1 Bolivia 1 Spain 2 Philippines 2 Venezuela 1 Poland 2 Bangladesh 2 Dom. Rep. 1 Luxemburg 3 Taiwan 3 Jamaica 2 Israel 1 Italy 5 Thailand 1 Liberia 3 Ecuador 2 Iran 1 Greece 6 South Korea 2 Kenya 3 Colombia 2 Bahrain 1 Belgium 6 Kazakhstan 2 Angola 3 Argentina 4 UAE 2 UK 7 Azerbaijan 3 Benin 4 Panama 4 Saudi Arabia 2 France 8 India 4 Senegal 5 Brazil 2 Mexico 6 Egypt 3 Germany 14 Indonesia 6 Rwanda 6 Costa Rica 6 Canada 19 Iraq 4 Turkey 17 China 25 Nigeria
    • U.S. Criminal Dispositions Compliance Monitor 16% (16) Deferred/Non-Prosecution Agreements 21% (23) Pleas 44% (48) Withdrawals 1% (1) Convictions 4% (5) Dismissals 3% (3) Fugitives 5% (6) Acquittals 6% (7)
    • Siemens Settlement - Facts
        • According to U.S. pleadings, $ 805,500,000 intended in whole or in part as corrupt payments to foreign officials
        • Corrupt conduct included:
            • Off-books accounts
            • Consultant agreements with no legitimate business purpose
            • Conduit payments
            • False invoices
            • Misaccounting for corrupt payments
            • Limited audits of consultant payments
            • Accumulating profit reserves as liabilities in internal balance sheet accounts
            • Removable Post-It notes as approval forms
            • Failure to follow four-eyes principle
            • Backdating agreements
            • Use of “agency agreements” to avoid prohibitions on consultants
            • Kickbacks in connection with the UN’s Oil for Food Program Contracts
    • Siemens Settlement – U.S. Sanctions
        • DOJ
          • Fine reduced to $ 450 million
            • U.S. Sentencing Guidelines range of $ 1.35 – 2.75 billion
            • Express recognition of Siemens’ “extraordinary cooperation,” its new Compliance program and remediation efforts, and penalties imposed in German enforcement actions
          • Imposition of a Monitor
        • SEC
            • Requires disgorgement of $ 350 million of profits
            • Imposition of a Compliance Monitor
        • Both DOJ and the SEC required Siemens to retain a monitor
          • Dr. Theo Waigel appointed compliance monitor for four-year term
          • Regularly scheduled reporting to SEC
          • Report improper activities to Siemens’ Audit Committee
          • Report to US government any improper activity that may constitute significant violation of law
    • Siemens Settlement - German Proceedings
        • October 2007 proceedings relating to Siemens Com
          • € 201 million fine
          • € 179 million tax penalty relating to € 450 million in “non-deductible expenses”
        • December 2008 proceedings relating to failure of former Managing Board to fulfill its supervisory duties
          • € 395 million fine
        • Continuing investigations of former Managing Board, employees and others
    • KBR / Halliburton
      • Facts:
          • Halliburton acquired M.W. Kellogg Company in 1996 and merged it with Brown & Root to form KBR
          • Kellogg and then KBR was part of a consortium to build LNG “trains” in Nigeria
          • Between 1994 and 2002, KBR and the other partners paid $182 million to two agents to pay bribes to senior and mid-level Nigerian officials
        • Sanctions:
          • DOJ Criminal Fine - $ 402 million
          • SEC disgorgement – $ 177 million
          • Monitor for KBR
          • Compliance consultant for Halliburton
      • Individuals:
          • Former KBR senior officer pleaded guilty and will serve up to 84 months in prison
          • Former agent (a U.K. solicitor) and former KBR officer, both UK citizens, charged. UK authorities have arrested the agent and are seeking the officer. U.S. has stated it will seek extradition.
    • Other 2008 Developments
        • Two DOJ Review Releases on M&A Due Diligence
        • Fourth Revision of “Principles of Federal Prosecution of Business Organizations” ( Holder, Thompson, McNulty, Filip Memo)
        • Written DOJ Policy on the Selection & Duties of a Monitor
      • An Investigation: Steps
      Trial Analysis Statutory Elements Subpoena Smell Test Random Event
    • An Investigation: How It Starts & What It Typically Means
      • Control over procedure & evidence
      • Control over timing
      • Control over public relations
      • Persuasion of internal constituencies
      • Selective disclosure?
      Self-reporting Following internal findings, e.g. whistleblower, internal audit
      • Timing constraints
      • Diverging interests of seller and bidder(s)
      • Impact on transactions (show stopper? no action letter? timing of closing? reps & warranties? escrow?)
      M&A transactions E.g. bidder due diligence or vendor due diligence (see StatoilHydro, Titan, ABB)
      • Initial fatal mistakes (e.g. lack of proper dawn raid policy)
      • Lack of control over procedure
      • Business disruption / distraction
      • Public relations issues
      Government action E.g. prompted by complaint, whistleblower, legal assistance request, international institutions, press reports (see Siemens, Daimler, Oil for Food cases, Statoil) Typical initial issues Typical triggers for investigations
    • Dawn Raids & Search Warrants
        • Have a policy that provides explicit instructions and contact information
        • Call counsel immediately. Until counsel arrives senior employee acts as leader
          • Do not agree to interviews or informal chats with employees unless counsel so advises
          • All requests for information other than the location of materials cover by the warrant /order should be referred to counsel.
        • Do NOT resist or interfere with police activity – offer assistance to minimize disruption to the company’s records, equipment, and employees
          • Ask to assist in electronic data gathering so as to not damage data or media
          • Offer a conference room for the officers to use where you will deliver requested materials
        • Make a record of your cooperation and the government’s actions:
          • Note the time the officers arrive.
          • Ask to see each officer’s credentials, write down names agency & contact information
          • Review warrant / order for apparent validity, addressee & limitations & make a copy
          • Get a detailed receipt specifically listing anything removed from premises and if possible copies
    • Anti Corruption Compliance Programs
      • Seven elements of an effective program:
        • Establish compliance and ethics standards and procedures to be followed by employees and other agents
        • Board of directors must exercise reasonable oversight and assignment of overall responsibility
        • Due diligence in delegation of substantial authority
        • Implement training programs and information dissemination
        • Implement monitoring and auditing systems, including use of a reporting system
        • Implement and consistently enforce appropriate disciplinary mechanisms
        • Respond appropriately to misconduct and take all reasonable steps to prevent similar offenses
    • Mergers & Acquisitions: Due Diligence
        • Inadequate due diligence can result in liability
          • Successor liability for pre-acquisition conduct
          • Direct liability for continuing post-acquisition conduct
        • FCPA due diligence before mergers and acquisitions is increasingly expected by the U.S. government.
          • Recent guidance suggests that due diligence coupled with disclosure and cooperation may result in a post-acquisition “grace period” to impose new controls and clean house
        • Due diligence includes:
          • Due diligence questionnaire
          • Interviews with key executive and operational personnel
          • Thorough review of target's books and records
          • Identify and review third parties retained by target - level of review based on business volume and geographic risk profile
            • Interviews with critical third party personnel
            • Review of books and records by agreement or by audit rights
          • Appropriate response to “red flags”
            • Retention of external counsel
            • Forensic accounting review
    • Third Parties (Agents, Suppliers, Wholesalers, Customers): Due Diligence & On-Going Risk Assessment
      • Existing contract due diligence
      • Internal controls
      • Look for conduit payments
      • Ensure proper finance structure
      • Check for red flags
        • Examples on next slides
      • Compliance Program
      • Ensure proper due diligence
      • Oversee compliance training and maintain certifications
      • Anti-corruption SOPs
      • Maintain help lines
      • Ensure prompt enforcement and discipline
      • Periodic compliance auditing
      • Partner/agent due diligence
      • Partner/agent contract terms
      • Check for red flags
      Sales & Marketing Finance & Controls Legal & Compliance
      • Red flags:
      • May signal a compliance issue that requires further/heightened due diligence
      • Periodic re-review may be necessary
    • RED FLAGS: Agent/Vendor I Agent/Vendor Related to customer or government official Questionable past Incorporated in high risk country Primary strength is influence Lacks experience Lacks references Government official referred Was referred by customer Commercial capability Established facilities Experience in the region Favorable business references No government contracts Based in low risk country Commercial directory listings Past relationship with company
    • RED FLAGS: Agent/Vendor II Agent/Vendor Anonymity Refuses corruption contract provisions Misleading payment structure False documents Subcontracting to third party Excessive compensation Success fee Transparent payment process Accurate documentation Detailed scope of work Concrete deliverables Effort-based compensation On-budget, on-time performance Interface with qualified staff
    • RED FLAGS: Payments Payment Third countries or parties Shell companies Post office boxes Unexpected bonuses or loans Requests negotiable currency Larger payments during bid process Third country banks Invoices paid too quickly Established banks Matches commercial capability Regular channels Commercially reasonable terms Reasonable compensation Payment in country
    • RED FLAGS: Operations Operations Requests backdating or fraudulent documentation Connection with government or customer emerges Suspicious documentation Becomes subject to investigation Suspicious expenses or travel Refuses to certify compliance Well-trained employees Anti-corruption program Accurate documentation Performance consistent with proposals
    • Discussion Questions
      • 1.) In a normal international M&A transaction, should the anti-corruption due diligence match the standard set out in recent DOJ Review Releases on that topic?
      • 2. In an offering by a foreign issuer does a US underwriter risk FCPA liability if the issuer makes a corrupt payment traceable to the offering proceeds?
      • 3.) How much economic stimulus aid can a foreign corporation receive before it becomes a governmental “instrumentality” so that its employees are “foreign officials” under the FCPA?